Agriculture for Development

1. Agriculture for Development Chişinău, May 12th, 2008

2. Main WDR 2008 message • For sustainable development and poverty reduction, agriculture must be given a much more prominent place in the development agenda • Today there are improved opportunities to use agriculture for development • But not business as usual • More and better investments • Multisectoral & decentralized approaches tailored to local situations 2

3. Unique context of transitional countries • Agrarian structures — from collective to individual, from public to private (plots, farms, enterprises) • Role of state — from directing input & output allocations to providing public goods and a regulatory framework • Agricultural policy objectives — from food security & social service provision to food safety, quality & competitiveness • Heterogeneity across countries and within countries

4. 80% 20% 0 0 50% 100% Functions of agriculture differ in the three worlds of agriculture Agriculturebasedcountries Mainly SS-Africa Albania, Moldova, Kirghiz Rep Agriculture’s share in growth 1990-2005 Urbanizedcountries Mainly LAC, Bulgaria, Hungary, Poland, Russia, Ukraine Transformingcountries Mainly Asia, MENA Tajikistan, Uzbekistan, Romania Rural poor/total poor, 2002

5. Four Functions of Agriculture for Development • Lead sector for growth • Source of livelihoods • Poverty reduction • Food security • A way of better managing natural resources

6. 1. A trigger for overall growth in early stages • Large sector for GDP growth • Affordable food and wage competitiveness • Strong growth linkages Successes: China, India, Vietnam Accelerating agricultural growth in agriculture-based countries

7. 2. A source of livelihoods Global extreme poverty 2002, $1.08 a day • 2.5 billion people related to agriculture, • 800 m smallholders • 75% of poor are rural and the majority will be rural to about 2040 Global Urban poor 287 mill. South Asia rural 407 mill. MENA rural 5 mill. ECA rural 5 mill. East Asia rural 218 mill. Sub-Saharan Africa rural 229 mill. LAC rural 27 mill.

8. Growth from agriculture is especially effective for poverty reduction GDP growth from agriculture benefits the income of the poor 2-4 times more than GDP growth from non-agriculture (43 countries)

9. Agriculture and poverty inEurope and Central Asia Recovery in Eastern Europe and Central Asian agriculture is accompanied by a sharp drop in rural poverty

10. Agricultural growth and poverty reduction in Moldova In Moldova too, restoration of agricultural growth, after a strong initial downturn, has been associated with declining poverty Agricultural growth Poverty rates Moldova

11. 3. Agriculture and its key role for food security • Agriculture plays a key role in providing; • Food availability: globally, nationally and locally • Food prices and volatility • Access to food: a critical source of income to purchase food • Utilization of food: e.g., high nutritional status • Domestic and global shocks place additional strain on import capacity and therefore food availability Domestic price shocks: Maize in Malawi and Ethiopia Global price shocks: Rice and Maize

12. 4. A way of managing natural resources and the environment • Important user of natural resources: • 80% of fresh water resources • 40% of land area • 21+ % of greenhouse gas emissions Successes Watershed management, and environmental services Contributions to greenhouse gas emissions Developing country agriculture & deforestation 21.4 Developing country other sources 15.2 Industrialized countries 63.4

13. Improved Opportunities to Use Agriculture for Development Incentives Markets Innovations

14. Improved opportunities--Incentives Agriculture is now protected in ECA countries

15. Changing diets ̶ high value products and non-traditional exports Improved opportunities--Markets Meat Meat Horticulture Horticulture Cereals Cereals Developing and transition country consumption Developing and transition country exports

16. Moldova is shifting to high value exports Net agricultural exports Million US$ Note: Traditional products comprise tobacco and derived products, sugar, cotton, jute, coffee, tea, spices, and natural rubber latex.

17. Improved opportunities--Innovations • Technological innovations—much progress but underinvestment • Conservation farming and sustainable practices, Bt cotton • ICT in financial, marketing and extension services • Institutional innovations—many at early stages • Risk insurance • Rural finance • Marketing “software”—exchanges, information • Stronger producer organizations • Public-private-CSO partnerships • Value chains, extension, rural finance

18. Challenges to Effectively Use Agriculture for Development Achieving higher agriculture growth Implementing through better investment Promoting rural nonfarm pathways

19. Challenges—Growth • Supporting macro-policy environment and rural investment climate • Consistency of agricultural policies to suport private market development • Property rights for market development • Redefined roles of the state • Core public goods • Regulation and standards • Coordination

20. Global trade distortions remain pervasive Challenges—Growth Trade share losses to developing countries due to current global trade policies (% point loss to developing country trade shares)

21. Challenges—Connecting small farmers to markets • Policies on agrarian structure • Family farms usually more efficient • Economies of scale in high value markets • Demands of high value markets • SPS standards • Integrated supply chains • Key role of producer organizations and labor markets • Chile vs Central America

22. Agricultural-based countries spend too little on agriculture Challenges—Public investment Public spending on agric as a share of agricultural GDP (%) Share of Agriculture in GDP (%) Sources: WDR2008, data for Moldova from “Public Expenditures for Agricultural Development” Moldova Agricultural Policy Notes, World Bank. All data in figure is for 2004

23. Misinvestment and underinvestment in core public goods Challenges—Investment Subsidies have risen at the expense of public goods in India • Governance challenges • Political economy of reforms • New roles of the state • Vastly improved capacity to implement

24. Agricultural subsidies in Moldova • Farm subsidies but have been growing since 2001 • Trade offs for investments in core public goods such as R&D? • Need clear objectives for subsidies such as: • Overcome temporary market failures • Market development and innovation grants • Equity and poverty reduction Total Spending on Agriculture by type

25. Potential of agriculture for development : Multiple pathways out of poverty Efficient markets, value chains Demand for Ag products Demand for Ag products $ $ $ $ Commercial smallholders Rural labor market: Ag, Rural nnofarm, Migration Pathways out of poverty: farming, labor, migration       Social assistance Transition to market Transition to market: commercialization Subsistence farming

26. Moving beyond agriculture Improve nonfarm employment opportunities

27. Average years of education of rural 18–25 yrs ECA has a good base Moving beyond agriculture

28. Key Elements of a Policy Agenda for ECA • Policy objectives • Raising competitiveness and value added of agriculture • Making growth pro-poor and green • Stimulating rural non-farm income growth and exit from agriculture • Key policy issues for agriculture • Improving the rural investment climate • Reducing risk from policy changes & policy reversals • Improving access to markets, including to the EU • Food safety, standards, certification • Reducing barriers to regional trade • Supporting institutions (e.g., credit, tenure security, mkts) • Investment in core public goods (R&D, infrastructure) • Reducing the environmental footprint from agriculture • Fostering broader rural development

29. Postscript Wine as a successful high value export

30. South Australia as a major wine exporter • From wool and wheat to wine • 80 percent plus exported • Exports over a billion dollars annually • Rapid growth since 1990 • Focus on increasing quality and price • Ingredients of success • Shared vision and strategy • Foreign investment and alliances • Branding and GI • R&D, training and education • Strong producer and trade associations • Public-private partnerships • Building of tourist industry

31. Postscript 2: Tapping Global Wine Markets • Rapid expansion of Australian exports and increasing unit value

32. Thank you www.worldbank.org/WDR2008